Over the six months to 30 November 2016 the Net Asset Value per share of Jupiter European Opportunities rose by 1.2 per cent. This performance was behind the return on the benchmark index, which increased by 10.9 per cent. over the same period.
It would be tempting to attribute this short period of underperformance to Brexit, after all JEO has a much higher weighting to UK stocks than its peers. However, Alexander Darwall’s manager’s report has a refreshing and honest statement about the fund’s performance which we reproduce below:
“The macro backdrop neither explains nor excuses investment performance. Sector weightings, the underweight positions in oil and gas, basic materials and to a lesser extent financials all penalised performance and partly explain the outcome. But as always stock selection is the key. We aim to identify companies that should benefit from ‘super-macro’ drivers: regulatory changes, technology developments, changes in consumer or customer behaviour, or a shifting competitive landscape. We seek evidence that these drivers have indeed started to unlock multi-year, ‘micro’ opportunities for a given company. When we are correct these drivers can override the impact of macro factors. Equally, where we suffer reverses it is usually because our analysis of these drivers was mistaken.”
The manager’s report highlights a few stocks whose performance had an impact on returns. Marine Harvest, the largest salmon farming company in the world, is a beneficiary of changing consumer habits, in this case increasing consumption of salmon in the West; BioMerieux, a French diagnostics company, is enjoying a technological advantage over its competitors; and RELX, the Anglo-Dutch provider of information and risk analytics, benefits from its use of digital technology and regulatory changes. Amadeus, another ‘winner’, is using its industry leading technology in airline bookings to develop in the hotel booking segment.
On the downside, the biggest single negative impact was NovoNordisk: this concerns the manager. They say their confidence in robust US pricing for their insulin products was misplaced. The shock of NovoNordisk’s near term challenges has caused them to reconsider our investment. They have concluded that there are many reasons why they believe that the company has good prospects: the development of a new class of drug to treat diabetes, steady demand growth, and scope for innovation and differentiation.
Ingenico and Novozymes also detracted significantly from performance. The former, a world leader in the electronic payments business, has suffered from a slowdown in growth in the US. They consider their problems to be temporary rather than structural. In fact, they believe that new opportunities for Ingenico present themselves in countries like India where the authorities are encouraging electronic money transactions. They have therefore maintained our investment. The growth rate at Novozymes has declined. The company’s prospects appear to be to a certain extent dependent on energy prices. They are reviewing this position. Amongst the other notable underperformers were Grenke and ALK Abello. Neither of these gives us cause for concern. Both companies continue to generate good profits growth and they remain encouraged by their prospects. Inmarsat was another disappointing performer. In both its maritime and aviation operations the news flow has as yet failed to justify management’s bullish assertions. The coming months are critical in seeing whether or not this optimism is well founded.
JEO : Jupiter European has difficult first half